Investing in emerging markets for income & growth

In 2025, emerging markets accounted for 80% of global GDP growth.¹ They are at the forefront of global innovation in critical industries such as semiconductors and clean energy, at the same time as thoughtful reforms have reduced some of the risks inherent in these markets. For investors looking for growth and income, emerging markets are a natural place to explore.²

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

What is an emerging market?

Emerging markets are countries in an earlier stage of economic development than developed economies such as the US, UK or Japan. They may be transitioning from more rural, agrarian economies, reliant on the exploitation of natural resources, to modern, industrialised nations. They tend to have smaller capital markets, lower per capita wealth, and less well-developed infrastructure, giving them a stronger pathway of growth. It includes countries such as China, Brazil, India and Mexico.

What is a frontier market?

There are also frontier markets, which are at an even earlier stage of development. This might include countries such as Bulgaria, Costa Rica, Nigeria or Saudi Arabia.³ The definitions of both emerging and frontier markets are fluid and countries may move classifications. For example, FTSE Russell will upgrade Vietnam from frontier to emerging market status in September 2026.⁴

Why invest in emerging markets?

Investors are drawn to emerging markets for their higher growth potential. Emerging economies often have more levers to bring about growth. They can build infrastructure, employ technology, and strengthen their institutions. In some cases, they may be able to bypass traditional growth pathways and build efficiency. For example, while developed economies built digital transactions on top of existing banking structures, emerging markets have brought in lower cost, mobile-first payment systems.⁵

As a result, emerging market growth tends to be stronger than for developed markets. For 2026, the IMF is forecasting growth of 4.2% for the world’s emerging economies, compared to just 1.8% for developed economies.⁶ This is not a one-off. Growth in emerging markets has been consistently strong.⁷

Emerging markets also tend to have stronger demographics, with younger populations and growing middle classes. S&P Global says: “As global fertility rates decline, emerging economies have a unique opportunity to capitalise on their demographic bonus. Over the coming decade, most emerging markets will benefit from supportive demographics, with old-age dependent populations averaging 24% through 2035. This favorable demographic trend will expand their labour force and consumer markets.”⁸

In theory, this backdrop should create a more fertile environment for emerging market companies to grow their profits. Over the very long-term, this has been true, though the picture has been more mixed over the past decade, given the strength of the US technology sector.⁹ Nevertheless, emerging market investments could merit a place in a diversified growth portfolio.

What investment opportunities do emerging markets provide?

The mix of companies within emerging markets are as diverse as the countries themselves. Within the emerging market index, there is a broad spread of sectors. Technology is 30%, financials are 21%, while consumer discretionary companies are 11%.⁹ This disrupts the popular view that emerging markets are full of commodity companies and brewers.

Emerging markets have been home to strong innovation in recent years. For example, 75% of global semiconductor production capacity and supplies of key materials is concentrated in Asia. This is particularly true for the smallest chips required to execute advanced AI functions, with nearly all fabrication capacity based in the region.¹⁰ There has been innovation in ecommerce, in clean energy and AI.¹¹ China’s National Intellectual Property Administration received 1.8m patent applications in 2024, the highest in the world, and up 9% on the previous year.¹²

Even in conventional industries, such as banking, there has been real innovation. In Brazil, for example, there has been a digital revolution in the banking sector.¹³ In 2020, the central bank created the Pix system, which enables its users - people, companies and governmental entities - to send or receive payment transfers in a few seconds at any time.¹⁴

Nevertheless, emerging markets are also home to more traditional industries such as mining. At a time of intense competition for natural resources many critical minerals are found in emerging markets.¹⁵ For example, China accounts for around 70% of global rare-earth mining and more than 90% of processing and finished metal production.¹⁶ Rare earths are the critical materials required for the powerful permanent magnets needed for everything from electric cars to household appliances and consumer electronics.

Emerging markets can also be a useful source of dividends. They are home to many cash generative companies, and dividend yields in emerging markets are often as high as their developed market equivalents. For investors, emerging market income can be a useful source of diversification.¹⁷

^{What are the risks of investing in emerging markets?}

Emerging markets are often considered more risky than developed markets. However, it is important not to overplay this. Historically, political uncertainty has been associated with some emerging markets – and this can have an impact on stock market returns. Equally, economic growth may not be linear. There will be setbacks and uncertainty along the way.

However, we see many emerging markets adopting more orthodox financial policies.² The IMF says: “Monetary policy implementation has improved, and the credibility of central banks has strengthened.” It adds that inflation is generally better-managed than it has been historically. Exchange rate management has also improved, leaving emerging markets less vulnerable to volatility.

Emerging markets tend to have less debt than developed markets. IMF data shows that in aggregate, emerging markets have a debt to GDP ratio of 75.8%, compared to 111.8% for developed economies.¹⁸ In general, emerging markets did not build up as much debt during the pandemic, and borrowing has been more expensive. Lower debt should give policymakers more flexibility to manage their economies, to invest in growth and infrastructure, and support their populations.

Emerging markets can be a potential source of capital growth, dividends and diversification. They come with risks, but these can be successfully managed by active managers with a presence on the ground in individual emerging markets. At BlackRock, we have local analyst teams with strong local networks feeding into our decision-making. This helps us uncover opportunities and manage risks to harness the growth in these exciting emerging countries.

Sources:

¹ UBP - Emerging market debt: a new paradigm - 26 January 2026
² IMF - Good Policies (and Good Luck) Helped Emerging Economies Better Resist Shocks - 6 October 2025
³ World Bank - ‘Frontier Market’ Economies Haven’t Lived Up to Potential Since 2010 - 20 January 2026
⁴ LSEG - Vietnam: The ASEAN powerhouse - 22 October 2025
⁵ Cornell - Winning the payments revolution - 4 August 2025
⁶ IMF - World economic outlook - January 2026
⁷ Statista - GDP in the emerging market and developing economies - 19 February 2025
⁸ S&P Global - Emerging Markets, a decisive decade - 16 October 2024
⁹ MSCI - MSCI Emerging Markets - 30 January 2026
¹⁰ Oxford Economics - Asia Chip Export Index - 3 October 2025
¹¹ Economist - How China became an innovation powerhouse - 25 August 2025
¹² World Intellectual Property Organisation - World Intellectual Property Indicators 2025 - October 2025
¹³ Galileo - The Digital Revolution in the Brazilian Banking Industry: A Decade of Transformation - 19 May 2025
¹⁴ Banco Central do Brasil - Pix - 19 February 2026
¹⁵ The Guardian - Freedom from China? The mine at the centre of Europe’s push for rare earth metals - 10 January 2026
¹⁶ The Daily Economy - China’s rare earth monopoly - and Why Markets Will Break It - 14 January 2026
¹⁷ FT - World Markets at a Glance - 19 February 2026
¹⁸ IMF - General government gross debt - 19 February 2026

Risk Warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Fund-specific risks

BlackRock Frontiers Investment Trust plc

Counterparty Risk, Currency Risk, Emerging Markets, Frontier Markets, Gearing Risk

BlackRock Latin American Investment Trust plc

Counterparty Risk, Currency Risk, Emerging Markets, Gearing Risk

BlackRock Smaller Companies Trust plc

Counterparty Risk, Gearing Risk, Liquidity Risk, Smaller Companies

Description of Fund Risks

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Currency Risk: The Fund invests in other currencies. Changes in exchange rates will therefore affect the value of the investment.

Emerging Markets: Emerging markets are generally more sensitive to economic and political conditions than developed markets. Other factors include greater 'Liquidity Risk', restrictions on investment or transfer of assets and failed/delayed delivery of securities or payments to the Fund.

Frontier Markets: Frontier markets are generally more sensitive to economic and political conditions than developed and emerging markets. Other factors include greater 'Liquidity Risk', restrictions on investment or transfer of assets and failed/delayed delivery of securities or payments to the Fund. There may be larger fluctuations to the value of your investment and increased risk of losing your capital.

Gearing Risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Liquidity Risk: The Fund's investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.

Smaller Companies: Shares in smaller companies typically trade in less volume and experience greater price variations than larger companies.